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U.S. Trade Rep Delivers a Blow to Eli Lilly

In a defeat for one of the biggest U.S. drug makers, the U.S. Trade Representative has decided not to add Canada to its “Priority Watch” list of countries that fail to sufficiently protect and enforce patent rights.

The move is likely to deepen the pharmaceutical industry’s growing frustration with some foreign governments over intellectual-property issues.

The agency’s decision comes despite a recent lobbying effort in Washington by Eli Lilly & Co., which has gone to international arbitration to fightCanadian court rulings that invalidated patents on two drugs. Lilly is seeking $500 million in damages. Ultimately, the drug maker hopes to force Canada to alter the way that patent rights are administered.

In recent weeks, Lilly officials met with the U.S. Trade Representative, the agency that negotiates trade agreements with foreign governments, and also convinced a bipartisan group of 32 Congressional lawmakers to write the agency to support its position. There was also assistance from the Pharmaceutical Research and Manufacturers of America, the industry trade group, which similarly asked the U.S. Trade Representative to elevate Canada’s status on its annual list.

Despite the lobbying, there was no indication the U.S. Trade Representative was sympathetic. In its 2013 report, in fact, the agency had downgraded Canada to “Watch List” status, a notch below the “Priority Watch” level, which was its previous designation. The downgrading was made after Canada introduced a bill to strengthen intellectual-property protection. Other efforts won praise in the latest report.

Just the same, in its report released today the U.S. Trade Representative did acknowledge points raised by Lilly. The agency noted “serious concerns” about the industry’s ability to appeal “Canada’s administrative process for reviewing regulatory approval of pharmaceutical products.”

The U.S. Trade Representative also complained about a “lack of clarity” and heightened judicial requirements for patents, which it described as an “amorphous and evolving standard.”

The drug maker took comfort in these points. In a statement sent to us, a Lilly spokesman wrote: “We were pleased to see that not only does Canada remain on the ‘Watch List’ in 2014, but that the USTR strengthened the language in the report.”

Last fall, the drug maker filed for arbitration under the rules of the North American Free Trade Agreement and is pursuing a so-called investor-state dispute which, under international trade treaties, allows companies to initiate claims against foreign governments.

Lilly’s efforts, however, have met with derision by consumer advocates and some legal experts. The U.S. Trade Representative “took a more subtle analysis of Canadian patent law that recognizes its evolving nature and the attempts to bring clarity to the law by Canadian courts,” says Richard Gold, a McGill University law professor who specializes in patent law. “Given the vehemence with which industry mounted its campaign – including putting forth misleading representations of the law and faulty statistics – this rejection can only be seen as a major slap against those who resorted to those tactics.”

The patents in question pertain to the Strattera attention-deficit disorder pill and the Zyprexa antipsychotic treatment, which the Canadian courts invalidated in 2010 and 2011, respectively, after Canada implemented a doctrine for determining intellectual property rights. In its arbitration filing, Lilly contends the doctrine produced absurd results and also accused Canada of expropriation.